Annual Report Balda AG Annual Repor t TECHNOLOGICAL PROGRESS AND GROWTH WORLDWIDE

Transcription

1 Balda AG Annual Report 2007 Balda AG Annual Repor t TECHNOLOGICAL PROGRESS AND GROWTH WORLDWIDE

2 THE COMPANIES OF THE BALDA GROUP (simplified illustration as at ) BALDA EUROPE ASIA AMERICA 100.0% BALDA MEDICAL GMBH & CO. KG 95.0 % BALDA INVESTMENTS SINGAPORE PTE. LTD % BALDA LUMBERG DEUTSCHLAND GMBH & CO. KG 100.0% BALDA GRUNDSTÜCKSVERM. GMBH & CO. KG direct TPK HOLDING CO. LTD % 3.0% indirect 50.0 % % % BALDA SOLUTIONS (BEIJING) LTD. BALDA SOLUTIONS (SUZHOU) LTD % BALDA LUMBERG TECHNOLOGIES PLÁSTICOS DA AMAZÔNIA INDUSTRIA E COMERCIO LTDA. UPPER YEAR HOLDINGS LIMITED % % BALDA SOLUTIONS DEUTSCHLAND GMBH % BALDA SOLUTIONS (XIAMEN) INC. BALDA LUMBERG TECHNOLOGIES INDUSTRIA E COMERCIO LTDA % 26.5 % BALDA SOLUTIONS HUNGARYIA KFT % TPK TOUCH SOLUTIONS (XIAMEN) INC. (formerly OPTICAL) % % TPK TPK LENS TOUCH SOLUTIONS SYSTEMS INC. (XIAMEN) (formerly INC. G&P) (formerly SUNSHINE TECHNOLOGY) % 60.0 % BALDA SOLUTIONS MALAYSIA SDN. BHD. BALDA AVY INVESTMENTS SING. PTE. LTD. INDIA % BALDA INVESTMENTS MAURITIUS LTD % % BALDA AVY (in foundation) BALDA MOTHERSON SOLUTION INDIA LTD. HOLDING PRODUCTION DISCONTINUED OPERATIONS OTHERS

3 KEY FIGURES CONTINUED OPERATIONS IN MIO. EUR Change vs in % Revenues Total performance Material expenses ratio (in %) Personnel expenses ratio (in %) EBITDA EBIT EBIT margin (in %) EBT Net loss of the year Operating margin after interest and tax (in %) Cash flow from current business activity Investments Employees (as at ) 7,218 6, Earnings per share (in euro) Year s closing price (in euro) in percent of the total performance 2 in tangible assets and intangible fixed assets 3 as at the end of the period

4 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD CHANGE AND TECHNOLOGICAL PROGRESS FROM TRADITION Balda has developed a living culture of constant change from the century of tradition of its existence. Only through change can technological progress be successfully positioned at the highest level in the market as well. Since the company was founded in 1908, innovation and technology have been the decisive drivers of progress and the guarantee of the company's success. Today, Balda is an internationally structured high-tech company with innovative products and superb performance through defined unique features. Balda develops and manufactures complete assembly groups with excellent product know-how and with a high level of production depth, using plastic, metal and electronic components, as well as touch sensors. The combination of touch sensors and plastic or metal casings creates integrated solutions. The technological diversification in the combination of the Touch, Infocom and Medical core segments allows synergy effects to be used and increases our performance through organisational advantages. Balda is the only company worldwide that, as a system supplier, unites all the processes necessary in the manufacture of touch-sensitive screens in a single plant and offers tailored solutions from a single source. We have a technological advantage in the area of development, especially in the touch segment. With four of our own production sites, we are well positioned in the important and rapidly expanding emerging markets of China and India across the group. Plants in Brazil and Malaysia, as well as in Germany for Balda Medical underline the international structure and global competitiveness of the Group. Our vision was and remains clear: Balda will strengthen its status as a technological leader through its new positioning and will continue to expand in the promising growth regions of Asia. In the area of innovative technologies, the Group will diversify more strongly, develop more widely and open up new markets. As a result, we are creating the requirements for further profitable growth and a sustained increase in added-value. This is how we are continuing our equity story and following it in a targeted manner. As an SDax company we attend to internationally renowned companies from the mobile communications industry, medical technology and various related markets with a focus on electronic devices. Not only the development of technological solutions, but also the products themselves have the highest high-tech claims. Following its launch into touch technologies in 2006, Balda developed into a system supplier and technology leader in many product areas during the 2007 financial year. The integration of plastic and touchscreen technologies creates an entirely new customer benefit.

5 » PROFILE AND VISION» FOREWORD BY THE BOARD OF DIRECTORS 2 8» REPORT OF THE SUPERVISORY BOARD 9 11» INVESTOR RELATIONS AND SHARES 12 15» CORPORATE GOVERNANCE CONTENT» INNOVATIVE TECHNOLOGIES IN FAST-GROWING MARKETS Transformation into a global high-tech company Infocom the traditional core business Touch the technological vision of the future Balda Medical Cornerstone of a traditional key technology Competitive advantages through synergies in the core areas 36» MANAGEMENT REPORT 37 Macroeconomic trend Status of Balda Markets Development of the business Profit and Loss Account Group and AG Cash flow 48 Investments 49 Balance Sheet Group and AG Capital structure, Board of Directors and Change of Control Production and purchasing Organisation and legal corporate structure 66 Employees Environmental protection Supplementary report Forecast Risk Report 78 84» YEAR-END TABLES » NOTES » AUDITORS STATEMENTS » GLOSSARY

6 2 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD JOACHIM GUT, CHIEF EXECUTIVE OFFICER (CEO) Global presence, innovation and technological progress are the cornerstones of our strategy. We are active in growth markets and we want to take advantage of this growth to boost our profitability by consistently driving forward the process of repositioning in the developing countries in Asia, by expanding our services portfolio in the core business areas to include innovative technologies and, in particular, to fur-ther expand our position in the Touch division. DR DIRK EICHELBERGER, CHIEF FINANCIAL OFFICER (CFO) By operating on a global level, the Balda Group can enhance its strengths as a system supplier, exploit synergy effects and develop additional earning potential. We want to further secure and expand our competitive edge and our technological advantage. Balda s new orientation has created potential for future development on the capital market.

7 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 3 AN INTERVIEW WITH JOACHIM GUT AND DR DIRK EICHELBERGER IN THE FOLLOWING INTERVIEW, THE CHAIRMAN OF BALDA AG, JOACHIM GUT, AND THE CHIEF FINANCIAL OFFICER, DR DIRK EICHELBERGER, DISCUSS THE 2007 FINANCIAL YEAR AND EXPLAIN THE STRATEGIC DIRECTION AND FUTURE PROSPECTS OF THE COM- PANY IN VIEW OF THE CHANGING MARKETS. Mr Gut, 2007 was an eventful year for Balda. What characterised the last financial year in particular? Gut: In 2007 we completed the crucial step in the transformation from a traditional, local plastic manufacturer to a global high-tech system supplier. Our customers and our markets have changed a great deal. High-tech products at competitive prices are now almost exclusively manufactured in Asia. We have adjusted to this and consistently expanded our activities there. We began this some years ago. In early 2006 we also entered into the high-growth Touch technology industry and thus reset the points to completely realign Balda strategically. Why is the Touch division, alongside the other core divisions, so important for Balda? Gut: There is great potential for the future in Touch technology. Screens that react to human touch are increasingly being used in all areas of daily life, at work and at home. We are focussing on touch technology as this will also be a decisive growth driver for Balda in the future. The focus of our activities remains, however, on the traditional core business Infocom, the business with high-tech products that include both telecommunication and information technology components, which complement each other. Thus information and communication technology merge together synergetically. In addition, the medical technology business of our Balda Medical is still a successful division which is increasingly uncovering synergy potential with the other divisions. What role do the market and sector environment play in this development? Gut: Over the last few years, our customers have increasingly quickly outsourced their production to Asia: to growth regions where new markets with billions of potential end customers have opened up or are emerging. Large parts of the world are currently supplied with high-tech end products from here. Market trends and developments are leading the way: Suppliers have to produce in their customers regions, in all core divisions. We detected this development early and built up our own production in China for the Infocom division. Anticipating market development early that is the challenge.

8 4 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD Have you already reached the goal of your strategic planning? Gut: We have not completed the repositioning by a long way, it is changing constantly. But we have taken important steps in the 2007 financial year and clarified the new orientation. Our core business fields today are: Touch and Infocom, and now Medical. By entering into Touch technology, Balda has quickly become a system supplier with competitive products that contribute to the fight against the general pricing pressure in the sector. In the Touch technology division, where we have become specialised, we still have an advantage over the competition especially in terms of development and that is crucial. The combination of our strengths creates decisive competitive advantages for us. However, transition years are always a difficult time that needs to be overcome. Especially in such a complex competitive environment. That is the challenge for us. Can you name the benefits that result from this orientation? What raises Balda above the competitive environment? Gut: We are ideally positioned as a global organisation with innovative Touch solutions, the traditional core competences in the Infocom division and with medical technology. Balda is the only company in the world which as a system supplier combines all the processes required for the manufacture of Touch screens in a single plant. Our divisions work hand-in-hand and support each other this creates synergies. There is enormous potential in the combination of plastic and Touch technology. In the metal processing industry as well especially in the manufacture of metal parts for mobile communication products we have far-reaching expertise which we can use across divisions. Nobody else currently offers a comparable range of services. We have been able to maintain our technological advantage over our competitors and are innovation leaders in some areas. This includes, for example, small format displays. Such transformation always brings changes and risks with it, can you briefly explain these? Gut: When a company expands into growing innovative areas, there is always a particular risk that the development is supported to a large extent by single large orders. By gaining new, additional customers, as a result of the orientation towards considerably more core competences and our international expansion, we are positioning ourselves increasingly broadly and thus are becoming less dependent on individual projects. The Touch division not only manufactures for a large client, but we also want to position ourselves more broadly here. In the last financial year, we were listed by numerous companies as development partners. Sustained opportunities exist here and in further product diversification which clearly exceed the risks. Has the corporate structure changed as a result? Gut: In the last year we have invested in regions and technologies which in future will be important growth drivers in the market. We have taken our focused business fields into account in the structure and in this context we have redefined and optimised important processes within the business procedures within the entire Balda group.

9 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 5 What is the situation at the sites, particularly in view of the increasing focus on Asia? Gut: We are in a position to adjust the capacities correspondingly over the course of 2008, as part of the imminent new projects in the Touch division. Ground has already been broken for an additional building in Asia. The traditional core business Infocom is expanding and has grown considerably in Asia. From mid-2007, casings have been manufactured that combine our plastic technology with metal components from the joint venture Balda AVY, which was founded last year. We want to expand this production capacity further. Our production facilities in Malaysia, where, among other things, accessories for MP3 players, mobile phone cases and Bluetooth headsets are manufactured and designed, were expanded in late 2007 in order to be able to cope with the increased order volume there.... and Balda Medical? Gut: Balda Medical in Bad Oeynhausen developed considerably better than planned in the last financial year. Over the last few years we have rapidly created an excellent starting position here in a new market. Moreover, at Medical we have also moved forward in the association with our Asian activities: Balda Medical and Balda Solutions Malaysia have won the first global order together. This will be repeated. The sale of the European Infocom business was and is part of your strategic plans. What are the reasons behind this decision? Gut: The markets in the technological environment are constantly changing, the European markets have also developed further. The European Infocom business has its future in business fields which are no longer part of our core business. That is why we sold it at the end of In the first quarter of 2008 there was also an unexpected dispute with the purchaser regarding the amount of losses contributed by the German companies in We took the production sites back in order to prevent unjustified cash withdrawals and to have control over the events again. That was the best solution. However, this does not change the strategic decision to sell these activities. We are still looking for an investor who will use and develop the existing capacities sensibly. The decision to sell was not an easy one for us, but we are convinced that it was right in the interests of these divisions. The focus on our core divisions requires consistent concentration and the further development of our business. Only in this way can we secure the continued existence of the company and increase the company value for the shareholders. You mentioned the shareholders. Mr Dr. Eichelberger, how do you judge the performance of the Balda shares in 2007? Were there serious influential factors on the stock exchange? Eichelberger: The price rise in the first half of the year clearly reflected the successes and expectations in the Touch division. Apart from the development of our business, of course, the external factors and marginal conditions on the capital market had an effect on the share price. The Balda shares were not able to avoid the sharp market fluctuations and the turbulence on the stock market after the US mortgage crisis in the second half of the year. In addition, order-related delays in production and the associated one-off effects contributed to the share price remained volatile in the third quarter. Our shares only recovered again by early November, even if they did not reach the high of early July. Overall, they increased by a good 26 percent in The interest among investors in Balda remained great. We see this as a sign of future potential and as confirmation that the path we are taking is the right one. However, even Balda is not able to escape the situation on the capital market and the influence on the price. In the mobile communications field in particular, the prices again fell substantially in the last quarter of 2007 and more sharply again in the first quarter of This is also reflected in the assessment of the Balda shares by market analysts. As a result of the taut financial situation at Balda and a few noises off stage, there was a considerable reduction in the share price in early This occurred

10 6 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD irrespective of the developments in the international capital market and our operating business. We are certain that the market will correct itself again over the course of the year. In mid-2007 there were production delays in China and the share price fell. Can you say something about this? Eichelberger: The share price highlights the dependence on supplier and customer. Directly before series production for a large order for Touch screens, we made some specification changes upon request from the customer, which affected the entire production process. Expected shares of revenue and results have been postponed as a result with the known consequences for the share price. What is important are the prospects, and Balda has considerable potential for the future. Let s stay in the capital market. How would you describe Balda s current investor relations? Do the shareholders trust your new strategy? Eichelberger: As we are part of the mobile communication field as a system supplier, we are not able to escape from sector and market factors such as those described above. Marketrelated declines not only impact on the share price, but also on the confidence among shareholders. It is more important for us, therefore, to continually report about the development of the business and the strategy of the company within the framework of regular communication with capital market players. Balda has a solid shareholder structure. The successful progress of the capital increase in late 2007, which the main shareholders fully supported, has confirmed this. Nevertheless, there may still be shifts in the group of shareholders, which is nothing unusual. It was also made clear at the 2007 AGM that the shareholders supported the path being taken. There were critical voices as in most cases but ultimately consent was overwhelming. The important thing in 2008 is to implement the strategy being pursued consistently and to also to follow up in terms of the organisation. Mr Eichelberger, you have only been a director of Balda AG since November What are your personal intentions? Eichelberger: I am certain that I can contribute my international experience. I spent a considerable part of my previous position in the growth regions of Asia, in particular, so there are many links. We want to promote the further expansion of the Balda group, drive forward the global orientation and pursue the growth strategy; these are not only my goals and those of the Board of Directors, these are the goals of the entire company. Every CFO looks at the expenditure, at structural costs in particular, and at improving profitability overall. The improvement to the previous risk management is also a priority of my work. How do you intend to strengthen the position of Balda in the capital market? Eichelberger: We want to reinforce contacts with all stakeholders, enhance the transparency of our communication and regularly report about relevant developments and themes. In this way we create confidence on the capital market and thus strengthen our position.

11 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 7 Mr Gut, the shareholders expect a forward-looking order and customer situation, especially in such a sensitive market environment. Can you guarantee this for the current financial year? Gut: The Touch division contains enormous growth potential, especially in combination with our traditional core business Infocom. A large proportion of the market volume relates to screens of 2 to 8 inches, as can be seen in the centre of our production. Analysts expect the market for Touch screens in mobile telephones to grow over the next few years from 110 million units in 2007 to more than 500 million units a year. New large orders from renowned mobile telephone manufacturers, but also other looming new orders, confirm the trend of increasing market growth, especially in the Touch division. We want to continue and further expand existing collaborations and joint ventures in order to be able to use the associated organisational advantages even better. Let s move from an external to an internal perspective. What role do your employees play for you? Eichelberger: Our employees expertise is a very important factor. Without their performance, we would certainly not be as successful. Further training and the targeted promotion of employees have to be improved consistently. The global networking also impacts on communication within the group. We want to intensify internal communication further; it is important that we constantly ensure it is in line with our external communication. The staff should not learn what is happening in Balda from the newspapers. What are your staff levels today and in the future? Gut: As part of the implementation of our new business model, around 89 percent of our staff now work in Asia. At the end of 2007, the group as a whole had a total of 7,218 employees permanently working for Balda. This size of company still represents a particular challenge for staff development and promotion for us. Will Balda continue to be based in Germany in the future? After all, this is a traditional company. Gut: Balda AG has its headquarters in Germany. For high-tech companies in particular it is not unusual for them to have focuses outside their home country. Market development and trends now demand a global orientation. As a supplier, we must be flexible and produce where our customers are. We have already been experiencing a trend towards production outsourcing to the growth regions of Asia for some years in many growth sectors not only in the information and telecommunications industry. A development which is moving forward at a rapid pace. Nobody produces high-tech products for a mass market in Germany any more; internationalisation in technological development is unavoidable. Balda s centenary in 2008 is an expression of a tradition of change and the best evidence of decades of successful corporate development. Can you briefly say something about the progress of the financial year. Are you happy with the results for 2007? Eichelberger: 2007 again was a turbulent year for Balda with important changes. Because of the intensified production outsourcing by mobile telephone providers to Asia and the resulting development of the market, we have repositioned ourselves globally with altered core divisions. These structural changes and the necessary development of new markets not only result in a necessary process of market penetration, but also sales developments in new locations. Of course, the losses from the operating Infocom business in Europe, and from its sale, are a burden. However, in view of the incisive repositioning we are satisfied with the results for 2007 and see the opportunity of exclusively having profitable divisions in 2008 as a great incentive.

12 8 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD In view of the buyback of the European Infocom subsidiaries, Balda is experiencing a taut liquidity and financial situation. What will your financial situation look like going forward? Eichelberger: After the end of the 2007 financial year, the liquidity situation and financial situation in Germany indeed tightened. We knew we would have to refinance, but a few unexpected factors also arose. We immediately held intensive discussions with various lenders and have since fulfilled all the agreed conditions in order to continue the loans to the previous extent. Our further aim is to restructure the entire debt capital side and to secure the required funds and long-term debt capital as regionally as possible. We have already moved a long way towards this goal in Asia. You have developed immensely over 100 years. What differentiates Balda 2008 from the company founded in 1908? What are the three most important strategic projects for the next five years? Gut: We have transformed ourselves from a local plastics manufacturer into a global high-tech provider of high quality technological products. With regard to the products, we no longer have anything in common with the camera manufacturer of But today, as before, innovation and technology are the decisive drivers for our corporate development. Firstly, we also want to fulfil the constantly growing technological demands of our customers for innovative product solutions for all areas of everyday life and to further expand our technological advantage. Secondly, we want to meet the requirements of our customers and markets and accelerate the further expansion, above all in the growth regions of Asia. And thirdly we want to build up new market relationships and expand existing ones. In the next five years, we want to consistently implement these three strategic projects. This is why it is not without pride that I say: Change has become our tradition, for only if you change can you survive in the market over the long term.

13 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 9 DEAR SHAREHOLDERS, THE BALDA GROUP S 2007 FINANCIAL YEAR WAS CHARAC- TERISED BY STRUCTURAL CHANGES AND A STRATEGIC REALIGNMENT AS A RESULT OF THE INCREASING FOCUS ON THE COMPANY S CORE SEGMENTS. THIS ALSO HAD A SIGNIFICANT IMPACT ON THE TASKS OF THE SUPER- VISORY BOARD. THE STOCK MARKET AND THE MARKET ENVIRONMENT CAUSED DIFFICULT MARGINAL CONDITIONS OWING TO THE LARGE FLUCTUATIONS THROUGHOUT THE YEAR. In the 2007 financial year, the Supervisory Board dealt intensively with the current situation and the future development of the Balda Group. It monitored and advised the Board of Directors in the management of the company and in all decisions of strategic importance. The Board of Directors presented the Supervisory Board with all decisions requiring consent and after dealing intensively with the respective matters it made the necessary decisions. The Board of Directors informed the Board in a timely and comprehensive manner about all important issues regarding current business development, extraordinary events in the company and about the future planning of the company and its subsidiaries. It reported regularly about changing risk factors, important transactions and projects in the various divisions and about strategic measures and the orientation of the Group as a whole. MEETINGS OF THE SUPERVISORY BOARD AND ITS COMMITTEES The basis of the work performed by the Supervisory Board in the last financial year was formed by meetings of the Supervisory Board and the personal and written reports from the Board of Directors. In addition to the Board meetings, the chairman of the Supervisory Board maintained constant personal contact with the Board of Directors and found out about the current situation of the company. In the reporting year, the Supervisory Board held seven ordinary meetings, of which one was held outside Germany, in Xiamen, China. Three of the seven meetings were attended by all members of the Supervisory Board and there were no more than two absences at the remaining four. One telephone conference was also held. The Audit Committee worked closely with the Supervisory Board and made extensive presentations to it about all subjects covered in the meetings. The committee attended four meetings in the last financial year and held a telephone conference with the Supervisory Board. The subject of the meetings was the annual reports of the Group and the AG, as well as the situational report. The extensive advice also included the interim and quarterly reports, the issue of the audit mandate to the auditors and the subject areas of risk management and audit. The budget and business planning, amendments to the Articles of Association, changes in the Board and structural changes and measures within the subsidiaries and group locations formed the main focal points for discussion and prospective decisions in the last financial year. The Board made five decisions by written circular. The subjects of the Supervisory Board meetings in 2007 were corporate strategy, business development of the corporate divisions and their reporting, changes in the management and risk management. The central topics also

14 10 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD included the Group s strategic realignment, purchase and sale transactions, meetings with important investors, the strategic measures for the European business, financing matters, capital measures and questions regarding investor relations and corporate communication. The Board passed all its resolutions unanimously. The focus of the meeting on 23 March 2007 was mainly the 2006 Annual Report and the analysis of the current situation of the Group s locations in Europe and Asia. Additionally, internal Board matters were discussed. Furthermore, there was an efficiency audit of the Supervisory Board s work in order to calculate the possibilities for improving the work of the Supervisory Board. The meeting on 25 May 2007 focused on the strategic further development of the Asiatic Infocom division and the status of the TPK business in Xiamen, China, alongside the continuing internal Board matters. The main content of the discussions regarding the TPK business was the business development over the previous twelve months, strategic business relationships, location structures and production processes and procedures. Before the AGM, the current shareholder and capital structure was also on the agenda. The TPK site in Xiamen, China and sales developments and planning were the primary subjects of the meeting on 20 and 21 June 2007, along with financing matters. The planning for the 2007 AGM and current internal Board matters were also on the agenda. At the meeting of 9 August 2007, the progress of the European business and prospective IT system changes for the realignment of the software platforms were the focus of the discussions. In addition, the AGM was assessed and an analysis of the subjects relevant to the Supervisory Board took place. During the meeting on 21 September 2007, the Supervisory Board comprehensively discussed the current status of the European business and the proposals from the Board of Directors regarding the strategic realignment. In addition, the status of the prospective financing measures was discussed. Existing possibilities for expanding capacity in Asia were also analysed extensively. The decision template from the Board of Directors regarding the strategic alignment of the European business was agreed by written circular on 28 September. The meeting of the Board on 30 October 2007 primarily included the wording of the compliance statement regarding Corporate Governance Code and current financing matters. The business plan and prospective investments by Balda AVY were also discussed, along with the state of the sales negotiations for the European business. The tasks of the existing personnel committee in future are assigned to the Supervisory Board by decision of the Board meetings. In the last meeting on 10 December 2007, the focus was on the status of the prospective capital increase, the current status of the budget planning and the sales negotiations for the European business. CHANGES IN THE BOARD OF DIRECTORS AND THE SUPERVISORY BOARD Within the framework of the Group s restructuring, the Technology division was divided into regional areas of responsibility. For this reason, the director with responsibility for Technology, Ralf Ackermann, left the Board of Directors on 4 May We thank Mr Ackermann for his long-term cooperation and his work supporting the company. On 28 August 2007, the Supervisory Board member Dr Dirk Eichelberger was appointed as Financial Director of the company. With effect from 1 November 2007, Dr Eichelberger took over the tasks of the long-serving Finance Director Volker Brinkmann, who resigned his mandate on 31 October 2007 in order to devote himself to new tasks. We regret the fact that Mr Brinkmann has left Balda and thank him for his decisive contribution to the successful development of our company into a global high-tech group. With effect from 30 November 2007, Mark Twaalfhoven left the Supervisory Board in order to concentrate on his work as Chairman of Teleplan International N.V. He had belonged to the Supervisory Board since January We thank Mr Twaalfhoven for his excellent work and regret his leaving.

15 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 11 CORPORATE GOVERNANCE COMPLIANCE STATEMENT The Board of Directors and the Supervisory Board issued an updated Corporate Governance Compliance Statement in October 2007, in accordance with Section 161 Stock Corporation Act. Balda AG complies with the recommendations of the Government Commission of German Corporate Governance Code in the version of June 2007 with the exceptions listed in the Corporate Governance report. The complete reporting in respect of corporate governance within the company and all relevant information, including the remuneration for the Directors and the Supervisory Board, is contained in this annual report on page 16 ff. We thank the Board of Directors and all employees of the Group for their commitment and their work in the 2007 financial year. We thank you, our shareholders, for the trust placed in the company. Bad Oeynhausen, 14 May 2008 For the Supervisory Board Richard Roy ANNUAL REPORT The auditors selected by the AGM, PricewaterhouseCoopers Wirtschaftsprüfungsgesellschaft AG, audited and issued an unreserved certification to the Annual and Consolidated Annual Report and the summary situational report of Balda AG for the 2007 financial year. The annual report documents and audit reports have been received by all members of the Audit Committee and the Supervisory Board with sufficient notice. These documents were discussed extensively in the presence of the auditor, both in the meeting of the Audit Committee on 14 May 2008 and in the meeting of the Supervisory Board on 14 May The auditor was available to provide additional information. Based on their own audits, the Audit Committee and Supervisory Board did not raise any objections and consented to the results of the audit. The Supervisory Board approved the Annual Report and Consolidated Annual Report prepared by the Board of Directors. The Annual Report, therefore, is complete. The Board of Directors submitted the proposal to the Supervisory Board not to pay a dividend for the 2007 financial year. The Audit Committee and the Board of Directors have audited the proposal from the Board of Directors and the Supervisory Board has unanimously approved this.

16 12 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD A GOOD YEAR FOR THE STOCK MARKETS WORLDWIDE DESPITE TURBULENCE IN 2007 In 2007, the global stock markets were characterised by considerable price volatility. In February, a crisis on the Chinese stock market put pressure on prices for a short time. The trigger for the turbulence in the second half of the year was mainly the distortions in the American mortgage and credit market, which grew into a more sustained financial crisis. However, the bottom line of the leading indices increased considerably by the end of the year. The MSCI World Index ended the 2007 financial year up 7.0 percent compared to the start of the year. The Dow Jones improved over the same period by 7.2 percent, the EuroStoxx 50 by 5.3 percent. The German stock exchange profited from the increased trading activities as a result of the crisis in the financial market, and sales via Xetra and on the trading floor amounted to a good 2.6 billion euros a record level. DAX INDISPUTABLY AT THE TOP OF THE INDICES The leading German index performed disproportionately well when compared internationally. The profits of large industrial stocks more than compensated for the price falls suffered by the banks. Consistently good underlying data led to the DAX again achieving an increase of more than 20 percent in 2007, following its success in 2006 (up 21 percent). On the last trading day of the year, it closed at 8,067 points and therefore registered an increase of almost 21 percent since 2 January 2007 (6,681 points). The TecDax, driven by solar stocks, finished the year at a level of 974 points, adding 28 percent over the year (759 points on 2 January 2007). The German second-tier stocks in MDax and SDax ended their many years of boom. With a slight increase of 3.5 percent at the end of the year, the MDax remained considerably behind the DAX and drew nearer to the international trend. After an upwards trend which started in 2003, the SDax reached an all-time high of 6,684 points on 13 July Because of the high weighting of property shares, it was particularly affected by the price falls resulting from the US mortgage crisis and was not able to recover by the end of the year. The SDax closed the last trading day in 2007 down 8.4 percent on the start of the year.

17 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 13 BALDA SHARES: UP 26 PERCENT TO THE END OF THE YEAR Balda shares had a varied performance in the 2007 financial year. In direct comparison to the SDax, Balda shares performed considerably better. In the first half of 2007, Balda shares climbed in a positive capital market environment on the back of strategically important market successes, especially in the Touch division. In particular, the continued expansion into the growth regions of Asia and the increasing focus on the Touch division had a positive impact. After a closing price (Xetra) of 7.21 euros on the first trading day of the year, the Balda shares climbed by 64 percent to a closing price of euros on 3 July It reached its high for the year of euros on the same trading day. Because of production delays for a large order, the performance of the shares was held back in the second quarter. A specification change immediately before series production for a volume order in the Touch division led to adjustments in the process chain and this in turn led to considerable production delays. As a result, the target revenues and results in the Touch division for 2007 were moved back. At the same time, the weaker market development was making itself felt and the world's stock markets were coming increasingly under pressure. The Balda shares were not able to escape this development and fell. In accordance with the market conditions, the Balda shares recorded large losses during the third quarter. The year s low was 6.27 euros on 16 August Until October, the Balda share price was inconsistent and sometimes volatile. The separation of the European Infocom business announced at this time was received positively by the market. From early November, the share price started to recover and showed considerable increase in value. Our shareholders confidence was reflected in the results of the capital increase as well. With the focused repositioning, the sell off of the European Infocom business and the targeted orientation on the core segments of Touch, Infocom and Medical, Balda shares ended the financial year on 28 December with a closing price of 9.10 euros. This corresponds to the shares rising by more than 26 percent since the start of BALDA AG O.N. (Xetra) SDAX (Performance-Index) (Xetra) 1 value corr. to 1 day 160 % 140 % 120 % 100 % JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 80 %

18 14 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD CONSIDERABLY INCREASED TRADING ACTIVITY BY BALDA SHAREHOLDERS The average trading volume of the Balda shares in 2007, according to Xetra, on 252 trading days was 494,213 shares per day. Overall, 124,541,725 Balda shares were traded. According to the average daily closing price on Xetra in 2007, this corresponds to a value of 1,145.8 million euros. CAPITAL INCREASE 2007: UNRESERVED CONSENT FROM THE MAIN SHAREHOLDERS Balda earned a total of around 68 million euros from the capital increase, which was completed on 29 November ,769,584 shares were issued at 10 euros per share. After the capital increase, the Balda AG share capital increased from 47,387,088 euros to 54,156,672 euros. The capital increase was registered in the commercial register on 20 December. The basis for continuing the successfully started expansion course was strengthened with this capital measure. All the main shareholders have supported the strategic realignment of the company, which was planned and implemented by the management. In addition to the newly issued shares on the stock market through the capital increase, the measure included a further 4,691,321 shares from the capital increase decided in November 2006 and up to 19,677,249 shares which could arise from the conditional capital agreed at the General Meetings in June 2006 and August The market capitalisation as at totalled million euros. Compared to the reporting date in the previous year, this is an increase of around 72 percent. At the end of the 2007 financial year, the net loss of 73.3 million euros gave rise to earnings per share of minus euros, on the basis of 54.2 million shares (previous year minus euros with million shares). The Balda shareholder structure has changed slightly since the start of For example, the stakes held by SHAREHOLDER STRUCTURE (SHARES OF VOTING RIGHTS AS OF ) Shareholders Wyser-Pratte Sapinda Audley Capital Fidelity FMR Dr. Kofler Familie Chiang Nord/LB BayernLB Free float* Executive bodies announced shares (pieces) at KI 2,371, ,000, ,781, ,029, ,000, ,267, ,480, ,327, rd. 24,894,844 58,000 change of voting rights effective at in mio * incl. institutional investors under 3%

19 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 15 Wyser-Pratte and Fidelity FMR, along with the stake held by BayernLB, had fallen below the reportable three percent threshold. Nord/LB s stake increased to roughly 8.4 million registered shares; the stakes held by the executive bodies of Balda AG fell to eight thousand shares. As a result of this, the free float has changed since the start of the year to around 25.7 million shares. Further information about the current shareholder structure can be found on the Balda AG website. FIGURES ON THE SHARES IN TEUR Capital stock ( in millions) Year s high* Year s low* Year s closing price* Trading volume (in million shares) Dividend 0 0 Market capitalisation ( in millions) Earnings per share P/E ratio *Xetra closing prices WAIVE OF DIVIDEND IN 2007 The Board of Directors and the Supervisory Board propose to the General Meeting of 29 July 2008 that the payout of a dividend be waived. was constantly available for questions from shareholders. The Investor Relations website provides current structured information about all capital-market relevant themes and background information. At the TPK Technology Day on 12 September 2007 in Xiamen, China, Joachim Gut, CEO Balda AG and Michael Chiang, CEO TPK, reported extensively about the cooperation of the two sites and about the future potential of Touch technology. The interest from international investors in Balda is clearly demonstrated by the numerous individual and group meetings the Board of Directors held in the international financial centres of London, Zürich, Geneva, Milan, Paris, Vienna, New York, Boston and Frankfurt ANNUAL REPORT RANKING The Balda annual report was again ranked highly in the competitions organised by the leading German economics press. manager-magazin ranked Balda as number 10 among the best reports from SDax companies, based on its challenging and broadly structured criteria catalogue. In the Handelsblatt rankings, which focus on the quality of the information and the transparency of business reports, Balda came even better in 6th place in the SDax category. Network GmbH examined the production costs index of all annual reports. In this comparison, Balda achieved first place in SDax and third place in all index values. INVESTOR RELATIONS TARGETED COMMUNICATION ON THE CAPITAL MARKET The Balda Group continually provided detailed information to financial analysts, fund managers and economics journalists at press and analyst conferences upon publication of the 2006 financial statements, as well as when publishing the quarterly and interim figures for After each conference, the Board of Directors was available for questions and answers. During the financial year, investors were comprehensively informed in the course of regular roadshows about the current situation and the future prospects of the company. The Investor Relations department

20 16 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD CORPORATE GOVERNANCE REPORT Corporate Governance and the recommendations of the German Corporate Governance Code ( Code ) are highly valued by Balda AG. Open, responsible and consistently value-oriented corporate management and control has long been an integral part of our corporate culture. The Board of Directors and the Supervisory Board also carefully checked Balda AG s compliance with the Corporate Governance recommendations On 30 October 2007, the Board of Directors and the Supervisory Board renewed the Compliance Statement accoding to Section 161 of the German Public Companies Act (AktG) and published it on the Balda website together with previous compliance statements. In order to create equal conditions for members of the Supervisory Board and Board of Directors, Balda has also decided to continue to not disclose individual details about Supervisory Board members remuneration (Section of the Code). SUPERVISORY BOARD, COMMITTEES AND REMUNER- ATION OF THE SUPERVISORY BOARD Balda as a German stock corporation ( AG ) is subject to the German Stock Corporation Law and therefore has a two-part management and control structure comprising a Board of Directors and, in accordance with the articles of association, six Supervisory Board members. Balda follows the recommendations of the German Corporate Governance Code in its current version of 14 June 2007 with the following exceptions: Mark Twaalfhoven left the Supervisory Board with effect from 30 November The General Meeting of 29 July 2008 will elect a successor for the Board. For the members of the Board of Directors and the Supervisory Board, there is a directors and officers liability insurance policy without deductible (Section 3.8 of the Code). This is a group insurance policy for a large number of employees at home and abroad. A higher deductible is, however, not common practice abroad. Therefore, it does not seem appropriate to differentiate between officers and employees. The General Meeting of 1 June 2006 decided to waive individual information about directors remuneration (Section of the Code) according to the exception provided in Section 286 subsection 5 of the German Commercial Code (HGB). The Supervisory Board has not yet formed a Nomination Committee which exclusively comprises representa-tives from the shareholders (Section of the Code). Shareholders are exclusively represented in the Supervisory Board. In its meeting of 30 October 2007, the Supervisory Board dissolved the Personnel Committee for organisational reasons and transferred the existing tasks directly to the Supervisory Board. The existing Audit Committee continues to act as the auditor for accounting and budget planning matters. The members of the Supervisory Board received the following remuneration for the 2007 financial year: Fixed remuneration of TEUR 205 Variable remuneration of TEUR 148 The fixed remuneration for the members of the Supervisory Board includes remuneration for their activities in the committees. The variable remuneration is based on the development of the Balda share price in 2007 compared to the SDax. In 2007, the Balda share price considerably

21 PROFILE AND VISION FOREWORD BY THE BOARD OF DIRECTORS REPORT OF THE SUPERVISORY BOARD 17 exceeded the SDax performance, outstripping it by an average of more than 30 percentage points. As a result, the variable remuneration for the Supervisory Board in 2007 totalled teuro 148. Furthermore the members of the Supervisory Board were not given any consulting or mediation contracts and therefore no special remuneration was paid (Section of the Code). There were no conflicts of interest during the reporting period. At its meeting of 23 March 2007, the Supervisory Board audited the efficiency of its work according to the provisions of the Code (Section 5.6 of the Code). The members of the Board of Directors did not receive any payments from third parties which were promised to them in respect of their work as Board of Directors members or which were granted to them in the 2007 financial year (Section of the Code). The remuneration of the Members of the Board of Directors also contains payments after the resignation of Board members in addition to the fixed components. The variable remuneration for the Board of Directors generally includes components which are linked to the commercial and economic success of the company (performance-related remuneration) as well as components with long-term incentives. The component linked to commercial success is calculated using the pre-tax results (EBT) 2007 for the Balda Group. Supervisory Board member Mark Twaalfhoven purchased 40,000 Balda AG shares on 27 August 2007 at an unit price of 7.97 euros and sold these at the end of his tenure on 30 November 2007 at an unit price of 9.01 euros. BOARD OF DIRECTORS AND REMUNERATION REPORT The composition of the Balda AG Board of Directors changed over the course of Managing Director of Technology Ralf Ackermann departed on 4 May 2007, his departmental tasks were transferred to the regional divisions within the framework of the restructuring. On 31 October 2007, CFO Volker Brinkmann resigned. Since then, the members of the Board of Directors have included Mr Joachim Gut (COE) and Dr. Dirk Eichelberger (CFO), who succeeded Volker Brinkmann with effect from 1 November The remuneration of the Members of the Board of Directors in 2007 comprised the following (remuneration report Section of the Code): The remuneration of the members of the Board of Directors included monetary remuneration comprising fixed and variable components (Section of the Code) and ancillary benefits. The ancillary benefits of the members of the Board of Directors include the use of company cars and direct insurance, as well as a group accident insurance. No contractually promised pension commitments were agreed. The variable remuneration components with long-term incentive elements involve stock options that have been granted to the members of the Board of Directors by the Supervisory Board on the basis of the stock option programme agreed by the General Meeting of 1 June According to the resolutions of the General Meeting, the programme includes a total of up to million options. Of these, 50 percent can be issued to the Board of Directors, 30 percent to the management of the group companies and 20 percent to the employees of the Balda Group. They can be granted until 30 June The term of the options is five years from the respective issue date with a retention period of two years. Before the options are exercised, the Xetra closing price for Balda shares must reach a minimum of 120 percent of the issue price at least once during the qualifying period. Other obstacles to exercising the options can be stipulated individually with each issue. The issue price for the options corresponds to the average Xetra closing price of the Balda shares on the last ten trading days before the options are issued. In the 2006 financial year, the directors were granted 500,000 options with a weighted exercise price of 6.38 euro. The value of the options as at the reporting date was 594 teuro. In the 2007 financial year, 500,000 options were granted in two tranches at a weighted exercise price of 9.85 euro. The value of the options as at the reporting date was 1,158 teuro.